• Scott Kepler

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  • “USDA”, which stands for the United States Department of Agriculture, currently offers some of the few mortgage products still available for those looking to buy a home with no down payment. In times past, USDA loans were often considered “farm loans”, which were mostly used to purchase properties in agricultural areas. Today, that is no longer the case for USDA loans. In fact, properties in almost every area of the country outside major metropolitan areas can be purchased with a no down payment USDA home loan.

    A USDA loan provides low-cost insured home mortgage loans that suit a variety of purchase options. If you’re unsure about your credit rating, or have concerns about a down payment, USDA mortgage loans can give you piece of mind with super low closing costs and options for nothing down when purchasing a home.

    What loan types does USDA offer?

    Currently, there are two kinds of USDA loan programs available for single family households:

    USDA Guaranteed Loans

    USDA Guaranteed Loans, which are the most popular kind of USDA loan, allow for higher income limits and 100% financing for home purchases. Applicants may have an income of up to 115% of the median household income for the area of the home. Area income limits for the guaranteed program can be viewed here. All USDA Guaranteed Loans carry 30 year terms and are set at a fixed rate for the life of the loan.

    USDA Direct Loans

    USDA Direct Loans are not as common as USDA Guarantee Program loans because they are only available for very low and low income households to buy a home, as defined by the USDA loan guidelines. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.

    USDA rural development loans vs. conventional loans:

    USDA home loans offer many benefits and protections that are not included in other loan types including:

     Credit flexibility
    USDA loan requirements are not totally credit score driven, although most lenders may require the borrower to have at least a 620 FICO score to obtain an approval. USDA mortgage guidelines are written with certain flexibilities that are not included in other mortgage types.

     Low monthly mortgage insurance
    A distinct advantage of a USDA rural development loan, as compared to a conforming loan, is great interest rates and low mortgage insurance (MI). The daily USDA mortgage rates are usually comparable to a conforming 30-Year Fixed loan.

     No down payment
    USDA mortgage loans have no down payment requirements when purchasing a home.


     What factors determine if I am eligible for a USDA loan?

    To meet USDA loan qualifications, your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must meet a specified percentage of your gross monthly income (29% ratio). Your credit profile and background will be considered. A FICO credit score of 620 or above is usually required for USDA approval through most lenders. You must also have enough income to pay your housing costs plus all additional monthly debt (41% ratio). These ratios may be exceeded to a certain amount if the borrower has compensating factors. Applicants for loans may have an income of up to 115% of the median income for the area. Maximum USDA Guaranteed Loan income limits for your area can be found here. Maximum USDA Direct Loan income limits for your area can be found at here. Direct Loan applicants must prove their family is without adequate housing, and also prove their ability to afford the new mortgage payments.


    How much can I can borrow with a USDA loan?

    When asking yourself the question “how much mortgage can I afford with a USDA loan”, there are several factors that will give you the answer.  The maximum amount for an USDA home loan is determined by:

    Maximum loan: The is not a maximum loan amount set for USDA Home Loans. Instead, a borrowers debt-to-income ratios will determine how much they can afford (29/41 ratios). In addition to the debt ratios, the borrowers monthly household income must be smaller than the USDA allowed maximum income limit for your the area of the home. Maximum Guaranteed Loan family income limits for the entire country can be found at here.

    Maximum financing: The maximum USDA Rural Loan amount will be 102% of the appraised value of the home (100% plus the 2% USDA loan guarantee fee).

    What is needed for down payment and closing costs?

    USDA mortgage loans don’t require any money for a down payment and they also allow the borrower to place the closing costs into the total loan amount (if the home appraisal permits).

    What property types are allowed for USDA mortgage loans?

    While USDA mortgage guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and single family residences.

    How long do I have to wait after bankruptcy to apply?

    Criteria for USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a USDA Loan application.